Clusters and Governments: Some Idle Thoughts and Ramblings ISRN Conference May 12, 2004 Robert D. Grace Vice President Economics and Research

First a little background on Leading Edge British Columbia

Organization  Not-for-Profit, Private Sector Society  Industry – Government partnership  Cluster/Partner-based Advisory Board  3 year financial commitment

Vision BC will be globally recognized as a premier destination for technology enterprise by investors, entrepreneurs, site selectors and potential technology recruits.

Development Model

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Are Clusters a “Tool” for Economic Policy Making?  Clusters provide a new way to think about the economy and economic policy making  Clusters capture important linkages: technology, HQP, marketing, information etc. that cut across sectors  Clusters alter everyone's traditional roles in economic policy discussions and decision-making – private sector, public sector, industry associations, research institutions, academia  Clusters bring together firms of various sizes – small, medium and large  Clusters can identify opportunities, both horizontal and vertical – it’s not just about problems

Do Clusters Really Matter? Three reasons why clusters matter: I. Increase Productivity and Efficiency II. Facilitate Commercialization III. Stimulate Innovation

Do Clusters Really Matter? Clusters increase “productivity and efficiency” by creating:  Efficient access to specialized inputs, services, info, research institutes and some “public goods” like training and education  Easier coordination and transactions across firms  Efficient diffusion of best practices among clusters  Performance comparisons among rivals (benchmarking)

Do Clusters Really Matter? Clusters can facilitate “commercialization” by:  Making more apparent the opportunities for new companies or new lines of businesses  Making it easier to start new companies or launch new products because of the availability of suppliers, HQP, knowledgeable money etc.

Do Clusters Really Matter? Clusters can stimulate “innovation” by:  Increasing the ability to pick up on innovation possibilities  Assisting in the creation of knowledge due to the existence of a pool of research institutions, suppliers, experienced management, HQP etc.  Increasing the ease of scientific research and experimentation given the availability of local resources

The Paradigms They Are A Changin’ The Old Way  Economic development is driven by policy decisions and incentives provided by governments This Is The New Thing  Economic development becomes a “collaborative process” that involves SMEs, research institutes, academia, industry associations and ALL levels of government

The Paradigms They Are A Changin’ BUT EVEN WHEN GOVERNMENTS BUY INTO THE NEW PARADIGM THEY HAVE TO BE VERY, VERY CAREFUL NOT TO TRY TO APPLY THEIR “OLD MODEL” TO CLUSTER DEVELOPMENT LET ME TRY TO EXPLAIN

“Old Model” Thinking Applied To Cluster Development The Approach a. Governments target perceived areas of market demand b. The initiative is driven by public sector intervention into the marketplace c. The demand for on-going financial commitment by all levels of government is created

“Old Model” Thinking Applied To Cluster Development The Result 1. A high failure rate 2. The dependence on continued public sector intervention (interference) grows and further distorts the marketplace

The “New Thing” Applied to Cluster Development The Approach a. The foundation is a “collaborative” of all the private and public stakeholders b. The leveraging of existing assets is critical – these include location and QOL (see Richard Florida’s work) c. The commitment by all stakeholders must be long term and sustainable

The “New Thing” Applied to Cluster Development The Result 1. The transformation of all private and public sector roles 2. Increases in the levels of success – yes Dorothy, near and medium term successes are possible

So What Is He Getting At Anyway??  To really achieve any improvements in a cluster’s performance you need a private sector-led, sustainable initiative that is specific and dogged  Leadership by committed private sector representatives is the only way to maintain the momentum for this continuous improvement. Governments cannot perform this role.  Governments need to be involved to help ensure a broad consensus and the really, really, quick implementation of the recommendations

THANK YOU